$2 Trillion More - Gasp - to Rescue the Economy

"They need to, in my option, just admit the truth and recognize that these banks are insolvent," he said. "Essentially, they're wards of the state. Everybody's pretending that these are private companies. They've been effectively nationalized."

Shareholders and bondholders would lose out, but in the end, the financial system would move on, Ritholtz said, adding that it was time to "throw out the old management that has demonstrated the inability to walk and chew gum at the same time."

The new Treasury chief intends to revamp the embattled TARP program, which has come under withering criticism from both sides of the aisle, and increase transparency and accountability.

TARP Program Under Fire

Recent reports from congressionally mandated oversight authorities expressed concern that the lack of transparency raised questions about the success of the program in stabilizing financial markets and the long-term results of the rescue plan.

Lawmakers in Washington have criticized banking executives whose firms have received billions in taxpayer dollars for using those funds on billions in employee bonuses and luxury expenses instead of loans to individuals and businesses. According to the New York state comptroller, Wall Street firms dished out $18 billion in cash bonuses last year. In another case, Citigroup planned to finalize the purchase of a $50 million luxury jet, but later canceled the order after complaints from the Obama administration.

"Too many banks are given a free pass, too many TARP recipients use these funds for everything but lending," said Senate Banking Committee chairman Chris Dodd, D-Conn. "The public is outraged by this behavior and with good cause."

Just last week, the Congressional Oversight Panel looking into TARP determined that Treasury had overpaid by $78 billion for securities that it bought from banks as part of the program.

"The taxpayer deserves better than what they're getting," said Sen. Richard Shelby, R-Ala.

The special inspector general for TARP, Neil Barofksy, said it was "too early to tell" if the first half of the $700 billion had been spent wisely, but recommended that Treasury increase the level of transparency and develop a better strategy on how to manage the huge portfolio of investments it now holds on behalf of the taxpayer.

Treasury's announcement today will be just one part of a multi-pronged plan from the administration to pull the nation out of the longest recession since the early 1970s.

In an effort to get people back to work -- almost 600,000 jobs were lost in January, the most in any month since 1974 -- President Obama has pushed Congress to approve an $800 billion stimulus package of infrastructure spending and tax cuts. Since the recession began in December 2007, 3.6 million jobs have been lost, nearly as much as the population of Los Angeles.

Stuart G. Hoffman, chief economist at PNC Financial Services Group, said the stimulus package could grow.

"I call the fiscal stimulus plan a necessary evil -- I may emphasize, more necessary than evil," Hoffman said.

He expected the president and Congress to do something to jump-start the housing market and to stop the flood of foreclosures. That probably will include getting people to buy homes through tax credits and lower interest rates. To deal with foreclosures, an extreme measure such as reducing outstanding principle might occur.

"I think it's going to be attacked from all sides," Hoffman said.

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